Chapter 4 Flashcards
What happens to the marginal product of labour when the quantity of capital used in production increases?
The marginal product of labour increases.
What are the causes of increases in total factor productivity?
- Technological innovation
- Improvements in organization of production
- Good weather for agriculture and construction
- Government regulations
- Relative price of energy
What is the effect of an increase in total factor productivity on output?
More output is produced given each quantity of the labour input.
What happens to the marginal product of labour schedule when total factor productivity increases?
The marginal product of labour schedule shifts to the right.
What does the Cobb-Douglas production function look like?
Y = z * k^α * N^(1-α)
In the Cobb-Douglas production function, what does the symbol ‘α’ represent?
The average share of capital in national income.
What is the estimated value of ‘α’ for Canada?
0.3 (30%)
How is total factor productivity (z) measured in the context of the Cobb-Douglas production function?
z = Y / (k^0.3 * N^0.7)
What is the Solow residual?
A measure of total factor productivity calculated using a Cobb-Douglas production function.
When a firm maximizes profits, what is the relationship between the marginal product of labour and real wage?
The marginal product of labour equals the real wage.
What is the profit maximization condition for a firm?
Marginal revenue equals marginal cost, or MPN = w.
What do the firm’s revenue and variable cost equations look like?
Revenue: Y = zF(K, Nd); Variable Cost: wNd.
What does the firm’s demand curve for labour represent?
It is the same as the marginal product of labour schedule.
Fill in the blank: The firm maximizes profits by choosing Nd to maximize _______.
Π = zF(K, Nd) - wNd.
What is the significance of the distance AB in the profit maximization diagram?
It represents the maximized profits.
True or False: The marginal product of labour schedule tells us how much labour the firm needs to hire such that MPN = w.
True.
